A Star Partner's Galleon Arrest
Shakes Up Ranks at McKinsey

Anil Kumar Put On Leave by Firm; Ties to India Elite

By

Amol Sharma in New Delhi and

Joann S. Lublin in New York

Updated Oct. 21, 2009 12:01 am ET

Anil Kumar
became a star partner at consulting firm McKinsey & Co. by building relationships in the technology industry and the Indian business world. Now, he is facing allegations that he used his connections to help facilitate an insider-trading conspiracy by hedge fund Galleon Group.

U.S. federal prosecutors charged Mr. Kumar on Friday with securities fraud and conspiracy on allegations he passed along information to Galleon about some McKinsey clients, including computer-chip maker
Advanced Micro Devices Inc.
AMD 1.59%
Galleon's billionaire founder,
Raj Rajaratnam,
and four others alleged to be co-conspirators were arrested along with Mr. Kumar, who is free on $5 million bail.

Mr. Kumar's alleged misdeeds have ensnared the management consultancy in one of its biggest scandals ever, one that hits at its core mission as a trusted adviser to businesses.

Through a lawyer, Mr. Kumar has denied the charges. McKinsey has put Mr. Kumar on an indefinite leave of absence. "This case is unprecedented in our history," said McKinsey spokesman
Michael Stewart.
"We have never had a case of a partner or anyone else in the firm being charged with criminal activity, if the allegations are true."

Mr. Kumar was assigned to the firm's Palo Alto, Calif., office at the time of his arrest. The 51-year-old consultant, one of McKinsey's more than 400 senior partners, joined the firm in 1986 in the U.S. and relocated to India in 1993 to help build the company's practice along with a small cadre of other partners. Former colleagues and associates describe him as ambitious and scrupulous.

McKinsey said it hasn't launched a probe. "We're trying to determine what kind of internal investigation we can do" without interfering with the government's efforts, Mr. Stewart said. "We have not been contacted by the authorities yet. We are in limbo."

Mr. Kumar made a name for himself within the company in 1998 by launching the McKinsey Knowledge Center, a facility in the New Delhi suburb of Gurgaon, where a team of several hundred employees carries out advanced business research and analytics to support McKinsey consultants. Such "knowledge process outsourcing" would later gain traction in the corporate world with investment banks, brokerage firms and hedge funds.

Examining the Deal

"It was really pioneering at the time," said one former McKinsey employee. "It was a hallmark of his time in India."

Mr. Kumar developed a close relationship with
Rajat Gupta,
an Indian-born McKinsey veteran whose eventual promotion to managing director of the firm's world-wide operations, the first non-Westerner to hold the post, raised the profile of Indians throughout the company.

Mr. Kumar helped Mr. Gupta launch the Indian School of Business in the southern city of Hyderabad in 1999. The school has tie-ups with international institutions like Northwestern University's Kellogg School of Management, and its governing board is stacked with a who's who of prominent Indian executives.

This week, Mr. Kumar told the Indian School of Business's executive board, of which Mr. Gupta is chairman, that he would take a leave of absence from his role as an adviser. A spokeswoman for the school declined to comment.

Insider trading and disclosure of a client's confidential information represent "the most mortal sin a McKinsey person could commit," said
Richard Cavanagh,
a McKinsey partner between 1970 and 1987. In the buttoned-down, strict McKinsey culture, "People get fired if they cheat on their expense account for like $20," he said.

In India, Mr. Kumar was a generalist who cultivated relationships with top Indian conglomerates, people familiar with his background said. Later, he specialized in high-tech fields. He is a graduate of the Indian Institute of Technology in Mumbai, one of the country's premier academic institutions.

"He was a very bright kid, though some felt he was reserved and a bit arrogant," said
Sabu George,
a classmate of Mr. Kumar's at the Indian Institute of Technology who is now an activist in India on health issues. "Everyone who knows him is totally shocked," he said, though he added he believes Mr. Kumar will be proved innocent.

In 1999, Mr. Kumar returned to the U.S. to work in Silicon Valley as an adviser to Internet and other high-tech companies, the people familiar with his background said.

More recently, Mr. Kumar began planning his post-McKinsey career, possibly as CEO of a major nonprofit organization in five to seven years, said
Pravesh Mehra,
a longtime friend who is a Heidrick & Struggles International Inc. recruiter.

"He wanted to do something significant and useful,'' said Mr. Mehra.

The federal complaint in the Galleon case alleges that Mr. Kumar obtained information from AMD and communicated it illegally to Mr. Rajaratnam to facilitate trades. Mr. Kumar "stood to benefit" because he was a direct or indirect investor in one or more funds affiliated with Galleon, according to the complaint.

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